Australia | Aug 18 2014
By Mathan Somasundaram, Baillieu Holst Quant Strategy
Summary: Aussie market had another decent positive day on low volume with no real global sentiment. We suggested clients should buy back into the market on Monday 11th morning after the pullback with Russia retreating and markets beginning to show value. Australia has the benefit of relatively high level of interest rates and high currency that can work as a buffer if macro conditions get substantially worse. We do not expect a rate cut while we expect local economy to get worse before improving. RBA has always expected this scenario to eventuate and will remain cautious.
Asian influence in house prices are likely to create a London/UK bubble effect where the property prices near the city remain relatively high while outer suburbs will get hit with affordability/unemployment issues. China property scare stories are out again and they will hurt sentiment on Iron Ore stocks. Local budget woes needs to get sorted, but the soap opera currently going from one miss step to another. It does not look like this will get sorted anytime soon.
On the infrastructure projects…i.e. road projects in Sydney…I am amazed at the lack of any cost-benefit analysis done on linking M4 and M5 (two roads that locks up bumper to bumper traffic after 7am and 5pm) by a tunnel while the west-link still remains mainly 2 lanes to the city. If you live in Sydney, get ready for more traffic, more toll gates and cost blow outs…just think of all the great road projects we have had in Sydney. Developers to make the money and the rest of us will pay for years….buy some LLC.
Trading idea of the day: Carsales.com (CRZ)…we have been positive on this stock since the selloff in late Jan to $8.80…now $11.16…dropped 10% on result and now it has bounced back. Global double digit growth story maintained. Quant Target Price $12.50…more when the market starts to pay attention to the global growth outlook.
Market Move: Aussie market was up 0.37% with turnover was just above $3.7b. S&P/ASX200 closed at 5587.1, up 20.60 points.
Macro Events: Tonight – EU June trade balance. Tomorrow – BHP Billiton, QBE Insurance, IAG, Oil Search, Sonic Healthcare, Amcor, GWA Group, Toll Holdings report earnings; Reserve Bank of Australia August 5 meeting board minutes, ANZ-Roy Morgan consumer confidence rating, July imports of goods, EU June current account, UK July CPI, UK July retail price index, US July building permits, US July housing starts, US July CPI.
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